Year-End Financial To-Do: 2020 is Over, Get Ready for 2021

Dec 31, 2020

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Now that we’re literally on the cusp of the dawn of a new year, here are a handful of reminders to put the wraps on our year-end blog series. We hope you have found these useful and encourage you to take note and take action on the items that are pertinent to your financial situation.

RMDs Are Back in 2021
The one-year suspension of required minimum distributions (RMDs) ends today. RMDs will once again return for retirement account owners age 72 or older and for certain inherited retirement accounts. The temporary suspension for 2020 does not require you to “double up” in 2021 – RMDs will be calculated based on the December 31, 2020 value of your retirement accounts. Also, keep in mind for inherited IRAs there may no longer be an annual RMD with the changes that were enacted under the SECURE Act. For account owners or IRA beneficiaries that died in 2020, a new 10-rule applies for distributing inherited retirement account assets to most surviving non-spouse beneficiaries. Exceptions apply. Talk to your financial advisor for additional information.

Charitable Deduction Rule Changes
The CARES Act temporarily modified the charitable deduction rules allowing cash gifts to public charities to be able to be deducted up to 100% of Adjusted Gross Income. For 2021, those rules are returning to the traditional deduction limits, meaning cash gifts to charities may be deducted up to 60% of your AGI. Taxpayers can still carry forward any unused deduction for up to five years. However, the CARES Act did make permanent the $300 above the line deduction. This deduction is only allowed for filers that use the standard deduction (not those that itemize), and the $300 must be a cash gift to a public charity. There is no carry forward for excess gifts, and the $300 limit applies regardless of whether you file single or married.

Access to Retirement Account Assets Returns to Normal Restrictions
The 2020 CARES Act was intentionally focused on providing assistance to individuals and businesses suffering adverse financial impacts caused by COVID-19. In particular, the CARES Act significantly reduced restrictions for individuals accessing their retirement account assets to help ease financial burdens. Key features of the Act included the ability for individuals to take Coronavirus-related distributions from employer sponsored retirement plans and IRAs of up to $100,000 (with favorable tax treatment), increased limits on retirement plan loans up to $100,000, and delayed existing retirement plan loan repayments of up to one year. Though helpful and well received, these provisions were not intended to be permanent and included very specific deadlines. The expanded retirement plan loan limit expired on September 23, while the Coronavirus-related distribution provision expires on December 30, 2020 and the loan repayment delay provision ends with loan payments due by the end of the year. Additionally, 2021 will bring a return to the normal restrictions and guidelines for access to retirement account assets, so individuals will need to review their employer retirement plan documents regarding any distribution or loan provisions, and consult with their tax advisors before making any distributions from a retirement account.

Review Insurance Policies and Needs
The uneasiness of this year has caused many to reevaluate their financial plans. A big part of that discussion often revolves around making sure the insurance products you have in place provide a “backstop” for when things do not turn out as originally planned. Now is a great time to review your current life insurance, long-term care insurance, disability insurance, and annuity contracts with your advisor to ensure you have the proper features and benefits for your current situation.

Make a Financial Plan and Stick to It
Were you financially prepared this year when the pandemic hit back in March? Do you have funding set aside for unexpected events like that as part of your long-term financial plan? If not, make sure you meet with a financial advisor in 2021 to take a look at your goals and see if your portfolio is aligned to meet those goals. You should have cash set aside to cover six months of expenses should an unforeseen event occur. In addition to that you should evaluate the “big picture” which includes all your investment holdings and the goals that will need to be met with those resources. Your asset allocation should not only match your risk tolerance, but also your time horizon and investment objective. Don’t let another unpredicted incident throw you off target for the future.

Benjamin F. Edwards & Co. does not provide tax advice; therefore, it is also important to consult with your tax professional for additional guidance tailored to your specific situation. Please remember, no investment strategy, including asset allocation and diversification, can guarantee a profit of protect against a loss in periods of declining values.